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And write the effects of the money policies applied by the Fed - Research Paper Example

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Effects of the money policies applied by the Fed Tutor Date: Introduction Fed money policy refers to economic measures undertaken by the United States Federal Reserve via the Central bank to control and regulate the amount of credit in the U.S economy (Brezina pp.8-19).Monetary policy aims at ensuring that economy has attained full employment as well as regulate the level of inflation…
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Research and write the effects of the money policies applied by the Fed
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Download file to see previous pages What is Fed and how they work? Fed refers to the United States bank that acts as a lender of last resort to commercial banks. Fed is some times referred to as a bank of other banks. The bank manages and regulates commercial banks and other financial institutions. Fed may promote economic growth via manipulation of interest rates. Whereby, Fed may decide to either decrease or increase lending rates to stimulate the U.S economic growth. The rates may be adjusted to increase the level of inputs and employments as well as to reduce the level of inflation. Connectively, Fed may participate in an open market operation to issue or to buy treasury securities with an aim of promoting economic stability (Obringer pp.1-3). What are Fed monetary policies? How they work and how it affects the economy? A monetary policy refers to the actions taken by the Federal Reserve to influence the amount of money in the United States economy. The Federal monetary policies involve three basic tools namely; open market operation, reserve requirements and discount rates (Brezina pp. 19-20). Fed regulates the amount of money in circulation by participating in an open market operation, whereby, Fed buys and sell securities. ...
Whereby, high reserves requirements may reduce the amount of credit rendered by commercial banks. This may consequently leads to a decrease in circulation of money (Brezina, pp.5-20). In above connection, Fed may utilize discount rates to stimulate economic growth as well as promote economic stability. Fed decides either to increase or decrease the rates of interest charged to the commercial banks. For example, if Fed increases interest rates to commercial banks, borrowers become discouraged and hence there will be less money in circulation (Brezina pp.10-25). What does Fed currently do with their monetary policies? Fed utilizes monetary policies to stabilize commodity prices; to ensure there is maximum level of employment as well as ensuring that the level of inflation has been fully minimised. For instance, Fed may decide to reduce or increase the cost of credit by making adjustments on discount rates (Tucker pp.436). Additionally, Fed may utilize reserve requirements and open market operations to stimulate U.S economic growth. Both Classical and monetarist economist asserted that monetary policies may be utilized to make adjustments on aggregate demand as well as to influence the commodities general price levels. On the contrary, monetary economist asserted that monetary policies may be utilized to make interest rates adjustment. This may consequently cause change in real GDP and investments (Tucker pp.436-437). Fed uses unconventional monetary policy? How it works and what is it? Unconventional monetary policy refers to an economic tools employed by Federal reserves in a situation where discount rates and other interest rates cannot be reduced further in order to stimulate economic growth (Glick and Leduc, paras1-4). ...Download file to see next pagesRead More
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